Jeremy Cooper of national tax and audit adviser Crowe Clark Whitehill says that keeping all financial information confidential is the key to avoiding invoice fraud and scams.
Invoice fraud is on the increase in the UK, with a number of sizeable frauds recently hitting the headlines, including one for more than £1m. Fraudsters are targeting their victims with increased sophistication, enabled partly by the rise in electronic communications.
Bearing this in mind, how can you spot an invoice fraud, and how can you protect your business from the fraudsters?
Invoice frauds happen when an organisation is unwittingly tricked into changing a supplier’s bank account details so that future payments to that supplier for genuine services are paid instead to the fraudster.
Property and construction is a prime target for such frauds as sizeable supplier payments are often made. Fraudsters are not usually casual opportunists and it is likely that months of planning and research has gone into understanding the company, its projects and systems before striking. Frauds usually only come to light when the supplier chases the payment, by which time the majority of the funds have been transferred out of the UK banking system, never to be recovered.
As a result, it is absolutely crucial that organisations and their staff are aware of the warning signs and know what to look out for. As the fraudsters often go to great lengths to establish trust with employees to ensure the scam is successful, they may well try to establish a relationship with the firm’s finance team before carrying out the fraud.
It is therefore imperative that finance staff are trained to understand how and why these frauds occur and encouraged to remain vigilant at all times:
- Make sure that any changes to suppliers’ bank details are independently verified by senior members of your finance team.
- If you are contacted by someone asking to change bank details over the phone, always ask for the change to be confirmed in writing (not email) and call the supplier back using details that have been previously verified and are held in a secure file.
- Use a different telephone to authenticate the request, and ask to speak to someone you already know at the supplier.
- When a supplier invoice is due to be paid, it is good practice to inform that supplier of the specifics of the payment, including the bank account details where the payment is to be made.
“Make sure that any changes to suppliers’ bank details are independently verified by senior members of your finance team.”
Ensure that your organisation’s financial information is kept confidential, as details of direct debits or payments can provide useful information to fraudsters which they may use to establish credibility with you or your staff.
Never reveal any passwords or PINs to anyone over the telephone, even if you are asked to by a bank employee who seems genuine. You might think this is obvious, but it does happen – fraudsters are well-prepared and extremely convincing.
What do you do if you suspect you have become a victim of invoice fraud? Act quickly: contact your bank and the police as soon as you become aware of the fraud. It takes the fraudsters time (albeit not that long) to transfer the money out of the UK banking system. If you can get to the money before it’s left the country, you have far more chance of recovering some of it.
If a fraud has occurred, review your procedures to see what steps you can put in place to prevent the fraud recurring. Fraudsters are continually changing and updating their methods, finding increasingly innovative and deceptive ways of fooling organisations and their employees, particularly as technology is evolving so quickly.
It is therefore no longer enough to have a basic procedure in place. Policies must be continually reviewed, based on expert advice and insight, and staff should be trained so that they understand and can implement the required steps.
Most businesses are covered under their business insurance policy if an employee commits fraud, but cover rarely extends to third party fraud. As a result, this can have a devastating effect on the business, causing financial difficulties ranging from short-term cash flow problems to – in extreme cases – insolvency.
Every business or organisation is susceptible to fraud, so don’t assume that simply because you have some fraud prevention structures in place that you are immune. Ensure your staff understand the risks and any procedures for preventing invoice fraud, and most importantly, stay vigilant.
Jeremy Cooper is a partner at national audit, tax and accounting firm, Crowe Clark Whitehill
